By Dennis Kaiser

Hawk

Property managers are literally at the front lines of the COVID-19 pandemic, in terms of ensuring safe and secure work environments for the tenants who occupy space in their buildings. Last May as the outbreak was taking shape, Connect Media spoke with Rising Realty’s Kayce Hawk to find out what they were doing at properties to get ready to welcome people back. Obviously, as the stay-home orders and business shutdowns lingered on throughout the summer, it has given owners and managers even more time to formulate plans and prepare buildings. We asked Hawk to update us on their approach and activities in our latest CRE Q&A.

Q: Since May when we last talked, what has changed and where are you in the process of preparing buildings for re-entry?
A: In May, we were very focused on our response to building wellness initiatives, proactive work with tenants on rents, and coming up with a plan for tenants to return. Obviously, most tenants have not returned to the office and Los Angeles remains in a modified “Safer at Home” order. While we are seeing some increased building occupancy, it is still less than 20% of our normal building population.

This Spring, Rising proactively prepared our buildings and updated operations to create the safest environment possible. Those plans continue to evolve. Where applicable, operational changes were made to building entryways to allow for a touchless experience from the front door to the office. Now, we are planning to enhance our sanitization routine with electro-static disinfection sprayers with environmentally friendly and non-toxic solutions.

Our commitment to the health and wellness of our buildings is paramount and has been for many years, but mitigating the risk of COVID-19 required a team and portfolio approach to creative thinking and a resolve to implement the changes. We are confident that when the time comes for tenants to return to work, we will be providing the safest environment possible for our tenants, guests and personnel.

Q: Since properties are largely unoccupied right now, what exactly are property managers doing to keep busy?
A: Our team became a “task force” facilitated by weekly video meetings where we discuss complicated issues and work together to solve them. This made our monumental effort feel manageable.

Further, there are multiple programs our managers are focused on right now:

Cash Conservation
– Indefinite “Work from Home” and rent deferment requests from retail tenants brings uncertainty. Each month, our managers review budgets with our engineers to evaluate which non-recurring items are priorities without sacrificing the Class A operations of our
buildings. In many cases, various tasks can be completed in-house with our engineering teams, saving substantial dollars. As a result, we have less than 10% variance in our net operating income across the board, and in some cases, we are seeing a higher net
operating income than budgeted.

Research
– Our management team constantly researches products and technologies to enhance the health and safety in our buildings. We specifically look for new and emerging products that integrate with our existing technologies and operations to maximize our building’s health, wellness, and impact.

Lease Modifications/Rent
Deferment Requests – We are tenant focused, and our mantra is “always start with yes.”
We are committed to working with the tenant, understanding their specific needs and desired outcomes and balancing that with ownership needs and goals. Our collection rate is more than 85% (much higher when discounting retail tenants), which we credit to our property management teams’ ability to have meaningful conversations with tenants. Our collaborative approach to our tenant needs requires a large time investment from our team, but leads to positive results for both sides.

Q: How are you keeping tenants engaged right now?
A: Social isolation is becoming the norm and tenant engagement is entering a new era, at least for the foreseeable future. With the majority of the workforce at home, our managers are working harder than ever to stay in touch. Each manager has weekly markers to personally and proactively reach out to our tenant contacts. Every Friday, each building’s management team sends a general update on building operations, and a reminder that we are open and there for them.

We have distributed two sets of brief surveys to our tenants to gain greater insight as to their future plans as it relates to returning to the office. The more we can learn about what they are thinking, the better we can plan for the future and how to best serve.

Unfortunately, most tenants have no definitive return date. In light of that, our concierges plan and host creative, fun and timely, virtual events. Examples include: gardening webinars, mixology classes, full moon soundbaths, kombucha making and other events that provide information through a fun medium.

Q: How has this impacted the financial performance of your buildings?
A: I think we are all aware that leasing came to a halt, however, the sublease market is seeing a lot of activity. The combination of smart, strategic thinking by our management teams and their consistent engagement and strong relationships with our tenants has led to strong financial performance as compared to budget as of Q2 2020. When I say strong, I can say that our overall variance to NOI ranges from up 10% to down 7% compared to budget. Most are sitting right around 3-5% variance to budget. To be honest, I was not expecting such strong performance during this pandemic, but the truth is, where retail is not present, we are collecting over 90% of our rents, and tenants that initially stopped paying have started submitting payments. Why did this happen? Because customer service and tenant experience is in Rising’s DNA. We focus on building a strong relationship from day 1 so that when hardships occur, we proactively work with our tenants to find a solution that benefits both parties. When managers are reactive, there is no opportunity to build a strong foundation that allows for cooperation when times are hard.

Q: What does the future of property management look like?
A: For the foreseeable future, we will continue to see this flexible, hybrid workforce; where some jobs are in-person and some are remote. Meaning, some of the challenges we face today will remain and working through best practices on proactive tenant outreach and relationship building will continue to be very important. Ultimately, these changes make great property managers and property management companies all the more important. Checking the boxes will simply not be enough as the world evolves. The basics of operations and reporting will remain, but it is the processes and practices that will matter. Managers have to be adaptable and creative, collaborative and cooperative, and keen on making changes quickly based on changing circumstances.

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For comments, questions or concerns, please contact Dennis Kaiser